All in all, a full 73 percent of parents with children under the age of 18 are worried about the cost of higher education. And with good reason: The most recent figures from the National Center for Education Statistics (NCES) estimate the average annual dollar price for undergraduate tuition, fees, room and board to be $4F0,614, $23,135, and $15,640 for private, non-profit, private for-profit, and public higher education institutions, respectively. But anxiety over paying for higher education doesn’t have to keep you up at night. Understanding the best student loans for college can help you come out on top in the student loan game. Here are a few tips to help you chart your course:
1. Federal Subsidized Student Loans
Also known as Direct Subsidized Loans, federal subsidized student loans — comprising Stafford loans and Perkins loans — are the “gold standard” of college funding. Disbursed and administered by the federal government through the Department of Education, these low-interest, fixed-rate loans are available exclusively to undergraduate students with financial need. Students apply through the Free Application for Federal Student Aid (FAFSA), and the amount of funding you can borrow is determined directly by the school.
What do these types of loans offer that others do not? The major advantage is that the government covers the interest that accrues — not only while students are enrolled in school, but also for a six-month “grace period” following graduation and during deferment periods. While students are still responsible for paying back the loan, they’re spared the burden of additional interest. This makes federal subsidized student loans an ideal option should you qualify.
2. Federal Unsubsidized Student Loans
Also called Direct Unsubsidized Loans, federal unsubsidized loans offer many of the same advantages of Direct Subsidized Loans, including free application through FAFSA, low, fixed interest rates, and flexible repayment terms. However, they vary in several critical ways.
For starters, both undergrads and grads are eligible, and need is not a requirement — so your family’s financial situation is not an issue. (There are some eligibility requirements however, including that students must be enrolled at least part time in programs leading to degrees or certificates.)
But there’s a catch that makes subsidized loans superior to unsubsidized loans in the breakdown of best student loans for college. With the latter, interest begins to accrue with the very first loan disbursement. Upon graduation, it’s capitalized and added to the principal…and to the student’s debt burden.
3. Private Loans
But what happens if you don’t qualify for a federal loan, or if the amount you receive isn’t enough? Enter private loans. Offered through non-federal lenders, including banks, credit unions, state agencies, and schools themselves, private loans are very different animals than federal loans.
In addition to variable, credit-dependent rates which can significantly increase the total loan repayment amount, private student loans aren’t subsidized. In other words, responsibility for the loan interest remains with the student. Not only that, but many private loans are ineligible for forbearance or deferment options — meaning payments begin while students are still enrolled in school. Private lenders are also less likely to offer loan forgiveness programs. A private loan may also come with prepayment penalty fees.
Not all private students loans involve making a deal with the devil. Shopping around to determine what different lenders are offering in terms of interest rates, fees and repayment options; understanding all of the conditions; and borrowing only what you need are smart ways to shop for loans.
If you’ve been worried about paying for college, you’re not alone. Recent findings from Gallup poll indicate that college costs top retirement, medical expenses, standard of living, and all other financial concerns for Americans. Hopefully our rundown of your options and the best student loans for college will help steer you in the right direction for you and your family.